TORONTO, May 3, 2012 /CNW/ - Labrador Iron Ore Royalty Corporation (TSX:
LIF.UN) announced today its operation and cash flow results for the
first quarter ended March 31, 2012.
Royalty income for the first quarter of 2012 amounted to $22.0 million
as compared to $30.3 million for the first quarter of 2011. The
unitholders' cash flow from operating activities after adjustments for
changes in amounts receivable, accounts payable and income taxes
payable (adjusted cash flow) for the first quarter was $14.4 million or
$0.23 per unit as compared to $48.0 million or $0.75 per unit for the
same period in 2011. Net income was $23.0 million or $0.36 per unit
compared to $38.9 million or $0.61 per unit for the same period in
2011. Equity earnings from IOC amounted to $11.2 million or $0.18 per
unit as compared to $19.2 million or $0.30 per unit in 2010. Cash flow
for the quarter was lower than last year as a result of lower royalty
revenue but mainly because IOC did not pay a dividend this year (2011
first quarter $29 million). IOC deferred the payment of a dividend due
to ongoing labour negotiations and substantial capital expenditures.
This will be reviewed during the third quarter. IOC has now reached
agreement with its unionized employees on a new six year labour
agreement.
All net income, adjusted cash flow and per unit figures referred to in
this report use the totals according to the financial statements plus
(where applicable) the $7,488,000 ($0.234 per stapled unit) interest on
the subordinated notes.
Production during the quarter was adversely affected by winter weather
conditions and somewhat by the start-up of the new ore delivery system
and the additional grinding mill. The integration of the new system and
mill has commenced, and ongoing commissioning continues with
operational handover and full production planned for mid-year which
should result in increased production and sales for the balance of the
year. Sales for the quarter were affected by the lower production and
the timing of shipments. Royalty income for the quarter was lower than
last year's first quarter due to the lower sales volume and pricing
that was lower than last year's first quarter (although higher than the
last quarter). It was also adversely affected by a reduction of $1.5
million due to the new pricing mechanism which is based on the current
quarter rather than the previous quarter. This pricing system invoices
sales at an estimated price and then adjusts prices to actual in the
next quarter. The strength of the Canadian dollar against its U.S.
counterpart continued to negatively impact royalty revenue and IOC
earnings.
Results for the three months ended March 31 are summarized below:
|
|
2012
|
|
2011
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Revenue (in millions)
|
$22.4
|
|
$30.7
|
|
Adjusted cash flow (in millions)
|
$14.4
|
|
$48.0
|
|
Adjusted cash flow per unit
|
$0.23
|
|
$0.75
|
|
Net income (in millions)
|
$23.0
|
|
$38.9
|
|
Net income per unit
|
$0.36
|
|
$0.61
|
|
|
|
|
|
"Adjusted cash flow" (defined as cash flow from operating activities as
shown on the attached financial statements adjusted for changes in
amounts receivable, accounts payable and income taxes payable) is not a
recognized measure IFRS. The Directors believe that adjusted cash flow
is a useful analytical measure as it better reflects cash available for
distributions to unitholders.
A summary of IOC's sales in millions of tonnes is as follows:
|
|
3 Months
Ended
Mar. 31,
2012
|
|
3 Months
Ended
Mar. 31,
2011
|
|
Year
Ended
Dec. 31,
2011
|
|
|
|
|
|
|
|
|
Pellets
|
1.85
|
|
2.27
|
|
8.71
|
|
Concentrates(1)
|
0.50
|
|
0.28
|
|
4.85
|
|
Total
|
2.35
|
|
2.55
|
|
13.56
|
(1) Excludes third party ore sales
Proposed Tax Changes
On July 20, 2011, the Ministry of Finance announced proposed amendments
to the Income Tax Act concerning stapled securities. Under the
proposal, when debt and equity are stapled together and trade as a
unit, the interest on the debt portion of the stapled security would
not be deductible in computing income for tax purposes. The
announcement has an effective date of July 20, 2012. Management is
studying the effect of this announcement on LIORC, while they await the
details of the proposed legislation.
Outlook
With a new six year labour agreement in place and the completion of the
commissioning of phase 1 of the expansion project expected shortly IOC
expects to have substantially increased production going forward.
Markets remain firm and pricing has recovered somewhat from the
weakness that took place late last year and the consensus appears to be
that pricing should remain firm for the balance of the year. We expect
that royalty revenue should increase for the balance of the year.
Management's Discussion and Analysis
The following discussion and analysis should be read in conjunction with
the Management's Discussion and Analysis section of the Corporation's
2011 Annual Report and the interim financial statements and notes
contained in this report. Although management believes that
expectations reflected in forward-looking statements are reasonable,
such statements involve risk and uncertainties including the factors
discussed in the Corporation's 2011 Annual Report.
The Corporation's revenues are entirely dependent on the operations of
Iron Ore Company of Canada (IOC) as its principal assets relate to the
operations of IOC and its principal source of revenue is the 7% royalty
it receives on all sales of iron ore products by IOC. In addition to
the volume of iron ore sold, the Corporation's royalty revenue is
affected by the price of iron ore and the Canadian - U.S. dollar
exchange rate.
The sales of IOC are usually 15% - 20% of the annual volume in the first
quarter, with the balance spread fairly evenly throughout the other
three quarters. For 2012, because of the coming on stream of the phase
one expansion, we expect first quarter sales to be less than 15% of
sales for the year. Because of the size of individual shipments some
quarters may be affected by the timing of the loading of ships that can
be delayed from one quarter to the next.
Royalty income for the first quarter of 2012 amounted to $22.0 million
as compared to $30.3 million for the first quarter of 2011. The
unitholders' cash flow from operating activities after adjustments for
changes in amounts receivable, accounts payable and income taxes
payable (adjusted cash flow) for the first quarter was $14.4 million or
$0.23 per unit as compared to $48.0 million or $0.75 per unit for the
same period in 2011. Net income was $23.0 million or $0.36 per unit
compared to $38.9 million or $0.61 per unit for the same period in
2011. Equity earnings from IOC amounted to $11.2 million or $0.18 per
unit as compared to $19.2 million or $0.30 per unit in 2010. Cash flow
for the quarter was lower than last year as a result of lower royalty
revenue but mainly because IOC did not pay a dividend this year (2011
first quarter $29 million). IOC deferred the payment of a dividend due
to ongoing labour negotiations and substantial capital expenditures.
This will be reviewed during the third quarter. IOC has now reached
agreement with its unionized employees on a new six year labour
agreement.
All net income, adjusted cash flow and per unit figures referred to in
this report use the totals according to the financial statements plus
(where applicable) the $7,488,000 ($0.234 per stapled unit) interest on
the subordinated notes.
The first quarter sales of IOC are traditionally adversely affected by
the closing of the St. Lawrence Seaway and general winter shipping
conditions and are not indicative of the full year's sales.
Production during the quarter was adversely affected by winter weather
conditions and somewhat by the start-up of the new ore delivery system
and the additional grind mill. The integration of the new system and
mill has commenced, and ongoing commissioning continues with
operational handover and full production planned for mid-year, which
should result in increased production and sales for the balance of the
year. Sales for the quarter were affected by the lower production and
the timing of shipments. Royalty income for the quarter was lower than
last year's first quarter due to the lower sales volume and pricing
that was lower than last year's first quarter (although higher than the
last quarter). It was also adversely affected by a reduction of $1.5
million due to the new pricing mechanism which is based on the current
quarter rather than the previous quarter. This pricing system invoices
sales at an estimated price and then adjusts prices to actual in the
next quarter. The strength of the Canadian dollar against its U.S.
counterpart continued to negatively impact royalty revenue and IOC
earnings.
The following table sets out quarterly revenue, net income and cash flow
data for 2012, 2011 and 2010.
|
|
Revenue
|
Net
Income
|
Net
Income
per Unit
|
Adjusted Cash
Flow(1)
|
Adjusted
Cash Flow
per Unit(1)
|
Distributions
Declared
per Unit
|
|
|
|
|
|
|
|
|
|
|
(in millions except per Unit information)
|
|
2012
|
|
|
|
|
|
|
|
|
First Quarter(2)
|
$22.4
|
$23.0
|
$0.36
|
$14.4
|
|
$0.23
|
$0.375
|
|
2011
|
|
|
|
|
|
|
|
|
First Quarter(2)
|
$30.7
|
$38.9
|
$0.61
|
$48.0
|
(3)
|
$0.75
|
$0.75
|
|
Second Quarter(2)
|
$38.1
|
$48.2
|
$0.75
|
$23.0
|
|
$0.36
|
$0.375
|
|
Third Quarter (2)
|
$54.9
|
$76.3
|
$1.19
|
$63.7
|
(4)
|
$0.99
|
$0.75
|
|
Fourth Quarter(2)
|
$38.8
|
$45.9
|
$0.72
|
$23.4
|
|
$0.37
|
$0.375
|
|
2010
|
|
|
|
|
|
|
|
|
First Quarter
|
$16.7
|
$15.7
|
$0.25
|
$22.3
|
(5)
|
$0.35
|
$0.375
|
|
Second Quarter
|
$52.5
|
$69.1
|
$1.08
|
$30.5
|
|
$0.48
|
$0.375
|
|
Third Quarter(2)
|
$40.9
|
$64.4
|
$1.02
|
$85.9
|
(6)
|
$1.34
|
$0.50
|
|
Fourth Quarter(2)
|
$54.3
|
$62.8
|
$0.99
|
$31.9
|
|
$0.50
|
$1.00
|
|
Notes:
|
(1)
|
"Adjusted cash flow" (see below)
|
|
|
(2)
|
Commencing with third quarter 2010, net income, adjusted cash flow,
distributions and per unit figures referred to in this table use the
totals according to the financial statements plus (where applicable)
the $7,488,000 ($0.234 per unit) interest on the subordinated notes
|
|
|
(3)
|
Includes a $29.0 million IOC dividend
|
|
|
(4)
|
Includes a $31.2 million IOC dividend
|
|
|
(5)
|
Includes a $11.5 million IOC dividend
|
|
|
(6)
|
Includes a $62.2 million IOC dividend
|
Standardized Cash Flow and Adjusted Cash Flow
For the Corporation, standardized cash flow is the same as cash flow
from operating activities as recorded in the Corporation's cash flow
statements as the Corporation does not incur capital expenditures or
have any restrictions on distributions. Standardized cash flow per
unit was $0.26(1) for the quarter (2010 - $0.23(1)). Cumulative standardized cash flow from inception of the Corporation
is $16.39 per unit and total cash distributions since inception are
$15.52 per unit, for a payout ratio of 95%.
"Adjusted cash flow" is defined as cash flow from operating activities
as shown on the attached financial statements adjusted for changes in
amounts receivable, accounts and interest payable and income taxes
payable. It is not a recognized measure under IFRS. The Directors
believe that adjusted cash flow is a useful analytical measure as it
better reflects cash available for distributions to unitholders.
The following reconciles cash flow from operating activities to adjusted
cash flow.
|
|
3 Months Ended
Mar. 31, 2012
|
|
3 Months Ended
Mar. 31, 2011
|
|
Standardized cash flow from operating activities
|
$16,827,813
|
|
$14,721,526
|
|
Excluding: changes in amounts receivable, accounts payable and income
taxes payable
|
(9,896,919)
|
|
25,811,810
|
|
Adjusted cash flow(1)
|
$6,930,894
|
|
$40,533,336
|
|
Adjusted cash flow per unit(1)
|
$0.11
|
|
$0.63
|
(1) Excludes note interest on subordinated notes paid directly to
unitholders of $7,488,000 or $0.117 per unit.
Liquidity
The Corporation has a $50 million revolving credit facility to September
18, 2013 with provision for annual one-year extensions. No amounts are
currently drawn under this facility (2011 - nil) leaving $50 million
available to provide for any capital required by IOC or other
Corporation requirements.
Proposed Tax Changes
On July 20, 2011, the Ministry of Finance announced proposed amendments
to the Income Tax Act concerning stapled securities. Under the
proposal, when debt and equity are stapled together and trade as a
unit, the interest on the debt portion of the stapled security would
not be deductible in computing income for tax purposes. The
announcement has an effective date of July 20, 2012. Management is
studying the effect of this announcement on LIORC, while they await the
details of the proposed legislation.
Outlook
With a new six year labour agreement in place and the completion of the
commissioning of phase 1 of the expansion project expected shortly IOC
expects to have substantially increased production going forward.
Markets remain firm and pricing has recovered somewhat from the
weakness that took place late last year and the consensus appears to be
that pricing should remain firm for the balance of the year. We expect
that royalty revenue should increase for the balance of the year.
Bruce C. Bone
President and Chief Executive Officer
Toronto, Ontario
May 3, 2012
|
LABRADOR IRON ORE ROYALTY CORPORATION
|
|
|
|
|
|
|
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
Canadian $
|
|
2012
|
|
|
2011
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
$
|
41,813,997
|
|
$
|
41,498,184
|
|
|
|
Amounts receivable
|
|
22,581,600
|
|
|
40,669,780
|
|
|
|
Income taxes recoverable
|
|
5,027,347
|
|
|
392,173
|
|
|
Total Current Assets
|
|
69,422,944
|
|
|
82,560,137
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
Iron Ore Company of Canada ("IOC"),
|
|
|
|
|
|
|
|
|
royalty and commission interests
|
|
285,789,872
|
|
|
287,131,292
|
|
|
Investment in IOC
|
|
310,013,926
|
|
|
299,280,483
|
|
|
Total Non-Current Assets
|
|
595,803,798
|
|
|
586,411,775
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
665,226,742
|
|
$
|
668,971,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
4,863,302
|
|
$
|
8,419,389
|
|
|
|
Interest payable on subordinated notes
|
|
7,488,000
|
|
|
7,488,000
|
|
|
|
Distributions payable to shareholders
|
|
16,512,000
|
|
|
16,512,000
|
|
|
Total Current Liabilities
|
|
28,863,302
|
|
|
32,419,389
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
116,020,000
|
|
|
114,830,000
|
|
|
Subordinated notes
|
|
248,000,000
|
|
|
248,000,000
|
|
|
Total Non-Current Liabilities
|
|
364,020,000
|
|
|
362,830,000
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
392,883,302
|
|
|
395,249,389
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Share capital
|
|
69,708,147
|
|
|
69,708,147
|
|
|
|
Retained earnings
|
|
218,024,293
|
|
|
219,001,376
|
|
|
|
Accumulated other comprehensive loss
|
|
(15,389,000)
|
|
|
(14,987,000)
|
|
|
|
|
|
272,343,440
|
|
|
273,722,523
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity and Liabilities
|
$
|
665,226,742
|
|
$
|
668,971,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved by the Directors,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(signed) Bruce C. Bone
|
|
|
(signed) Alan R. Thomas
|
|
|
Director
|
|
|
|
|
Director
|
|
LABRADOR IRON ORE ROYALTY CORPORATION
|
|
|
|
|
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
Canadian $
|
|
2012
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
IOC royalties
|
$
|
22,010,073
|
|
$
|
30,280,217
|
|
|
IOC commissions
|
|
231,003
|
|
|
250,969
|
|
|
Interest and other income
|
|
122,212
|
|
|
132,789
|
|
|
|
22,363,288
|
|
|
30,663,975
|
|
Expenses
|
|
|
|
|
|
|
|
Newfoundland royalty taxes
|
|
4,402,015
|
|
|
6,056,043
|
|
|
Amortization of royalty and commission interests
|
|
1,341,420
|
|
|
1,058,368
|
|
|
Administrative expenses
|
|
584,060
|
|
|
400,152
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Credit facility
|
|
93,493
|
|
|
92,465
|
|
|
|
Subordinated notes
|
|
7,488,000
|
|
|
7,488,000
|
|
|
|
13,908,988
|
|
|
15,095,028
|
|
|
|
|
|
|
|
|
Income before equity earnings and income taxes
|
|
8,454,300
|
|
|
15,568,947
|
|
Equity earnings in IOC
|
|
11,205,443
|
|
|
19,251,468
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
19,659,743
|
|
|
34,820,415
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
Current
|
|
2,864,826
|
|
|
5,088,794
|
|
|
Deferred
|
|
1,260,000
|
|
|
(1,696,000)
|
|
|
|
4,124,826
|
|
|
3,392,794
|
|
|
|
|
|
|
|
|
Net income for the period
|
|
15,534,917
|
|
|
31,427,621
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
Share of other comprehensive (loss) of IOC, net of taxes
|
|
(402,000)
|
|
|
(372,000)
|
|
|
|
|
|
|
|
|
Comprehensive income for the period
|
$
|
15,132,917
|
|
$
|
31,055,621
|
|
|
|
|
|
|
|
|
Net income per common share
|
$
|
0.24
|
|
$
|
0.49
|
|
LABRADOR IRON ORE ROYALTY CORPORATION
|
|
|
|
|
|
|
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
Canadian $
|
|
2012
|
|
2011
|
|
|
(Unaudited)
|
|
Net inflow (outflow) of cash related to the following activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
|
|
Net income for the period
|
$
|
15,534,917
|
|
$
|
31,427,621
|
|
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
Equity earnings in IOC
|
|
(11,205,443)
|
|
|
(19,251,468)
|
|
|
|
Current income taxes
|
|
2,864,826
|
|
|
5,088,794
|
|
|
|
Deferred income taxes
|
|
1,260,000
|
|
|
(1,696,000)
|
|
|
|
Amortization of royalty and commission interests
|
|
1,341,420
|
|
|
1,058,368
|
|
|
|
Interest expense
|
|
7,581,493
|
|
|
7,580,465
|
|
|
Common share dividend from IOC
|
|
-
|
|
|
28,994,815
|
|
|
Change in amounts receivable and accounts payable
|
|
14,532,093
|
|
|
(12,209,092)
|
|
|
Interest paid
|
|
(7,581,493)
|
|
|
(7,580,465)
|
|
|
Income taxes paid
|
|
(7,500,000)
|
|
|
(18,691,512)
|
|
|
Cash flow from operating activities
|
|
16,827,813
|
|
|
14,721,526
|
|
|
|
|
|
|
|
|
Financing
|
|
|
|
|
|
|
|
Distributions paid to unitholders
|
|
(16,512,000)
|
|
|
(56,512,000)
|
|
|
Cash flow used in financing activities
|
|
(16,512,000)
|
|
|
(56,512,000)
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash, during the period
|
|
315,813
|
|
|
(41,790,474)
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
41,498,184
|
|
|
73,611,888
|
|
|
|
|
|
|
|
|
Cash, end of period
|
$
|
41,813,997
|
|
$
|
$ 31,821,414
|
|
LABRADOR IRON ORE ROYALTY CORPORATION
|
|
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
|
|
Canadian $
|
|
Capital
stock
|
|
|
Retained
earnings
|
|
|
Accumulated
other
comprehensive
income (loss)
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2010
|
$
|
69,708,147
|
|
$
|
147,934,994
|
|
$
|
(4,271,000)
|
|
$
|
213,372,141
|
|
Net income for the period
|
|
-
|
|
|
31,427,621
|
|
|
-
|
|
|
31,427,621
|
|
Dividends declared to shareholders
|
|
-
|
|
|
(40,512,000)
|
|
|
-
|
|
|
(40,512,000)
|
|
Share of other comprehensive loss from investment in IOC
|
|
-
|
|
|
-
|
|
|
(372,000)
|
|
|
(372,000)
|
|
Balance as at March 31, 2011
|
|
69,708,147
|
|
|
138,850,615
|
|
|
(4,643,000)
|
|
|
203,915,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2011
|
|
69,708,147
|
|
|
219,001,376
|
|
|
(14,987,000)
|
|
|
273,722,523
|
|
Net income for the period
|
|
-
|
|
|
15,534,917
|
|
|
-
|
|
|
15,534,917
|
|
Dividends declared to shareholders
|
|
-
|
|
|
(16,512,000)
|
|
|
-
|
|
|
(16,512,000)
|
|
Share of other comprehensive loss from investment in IOC
|
|
-
|
|
|
-
|
|
|
(402,000)
|
|
|
(402,000)
|
|
Balance as at March 31, 2012
|
$
|
69,708,147
|
|
$
|
218,024,293
|
|
$
|
(15,389,000)
|
|
$
|
272,343,440
|
The complete consolidated financial statements for the first quarter
ended March 31, 2012, including the notes thereto, are posted on sedar.com and labradorironore.com.